Telenor ASA (TEL) climbed to a five-year high after Morgan Stanley upgraded its rating on the Nordic region’s largest phone operator as improvements in India boost the company’s dividend prospects.
The Fornebu, Norway-based company gained as much as 2.7 percent to 127.9 kroner in Oslo, the highest intraday level since January 2008, and traded 1.4 percent higher as of 1:38 p.m. local time. More than 1.1 million shares traded, about two- thirds of the three-month average. The shares have gained 43 percent since last year’s low of 88.05 kroner on June 4.
Telenor’s total dividend payout could grow by 18 percent on a compound annual growth basis between 2012 and 2015, Morgan Stanley analysts including Terence Tsui said in an e-mailed note today. “The key driver behind the dividend growth is that losses in India are dramatically coming down, as Telenor’s high investment phase in India draws to a close,” they said.
Telenor is seeking growth in Russia, India and other parts of Asia as competition intensifies in the Nordic region, where almost everyone already has a mobile phone. The company is also cutting costs in an effort to maintain earnings growth and plans to find savings of 5 billion kroner ($878 million) over the next four years, it said on Sept. 19.
“In the context of a challenging environment across the sector, we see Telenor’s growing dividend, re-rating potential and receding risks in India as supportive for an overweight rating,” said Morgan Stanley, which upgraded its recommendation from equalweight and increased its 12-month price target to 150 kroner from 137 kroner.
Telenor is in talks with Tata Teleservices Ltd. to combine their operations in India, three people with direct knowledge of the matter said in November. The combination would create India’s fourth-largest operator by users and may give Telenor access to airwaves in all areas of the world’s second-biggest mobile phone market.
Mobile-phone companies including Telenor, which earlier had its Indian spectrum canceled, and Tata Teleservices are seeking to revive growth in a nation where competition has driven call rates to a penny a minute.
Telenor is counting on an improved performance in Russia by VimpelCom Ltd. (VIP:US), 36 percent owned by the Norwegian company. It’s also expressed an interest in bidding for mobile licenses in Myanmar, while Vecernji List reported on Feb. 18 that Telenor is seeking to buy Croatia’s Tele2, without saying where it got the information.
“The M&A track record at Telenor has been mixed, in our opinion, with some success in Asia, such as in Thailand and Malaysia based on increasing mobile penetration rates in the region, but with some concerns over other investments like India and VimpelCom,” Morgan Stanley said.
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